LESSON ONE –
MULTIPLE CHOICE
ANSWERS
1-1
Question #1
 Answer: (1)
 Productivity is the amount of goods and services produced from
each unit of labour input.
 Country B is more productive than Country A because each
worker produces more widgets. Countries that are more
productive, usually have a higher standard of living compared to
less productive countries (in this case, Country B has a higher
standard of living than Country A).
1-2
Question #2
 Answer: (1)
 This is a normative statement, as it is prescriptive, showing
what should be or ought to be.
 Normative statements usually make claims.
 This is in contrast to a positive statement, which may instead
read, “Higher property taxes cause reduced household
consumption”. Positive statements may be verified via data
analysis and examining evidence.
1-3
Question #3
 Answer: (2)
 By increasing the money supply, it stimulates the overall level of
spending and this the demand for goods and services.
 The higher demand, in turn, causes firms to raise their prices and
increase the quantity goods produced and services provided. This
causes a demand for hiring new employees and thus increase
employment.
 NOTE – If you print too much money you create hyperinflation and it
becomes worthless. Think of the Canadian approach during the
2008/09 recession vs. the Venezuelan approach today.
1-4
Question #4

Answer: (1)
 Using the circular-flow diagram, an increase in production
levels by firms will increase the income of households, as
firms utilize a household’s labour, land, and capital.
 Because firms now produce more goods and services
that can be sold to households, they will increase their
revenue.
 Remember what s Land, Labour and Capital in an
economic context?
 Land – Natural resources (provided by nature for free)
 Labour – Mental or physical effort
 Capital – Man made machines, buildings etc. that
increase productivity
1-5
Question #5
 Answer: (3)
 Economist Adam Smith made a famous observation: households and firms interacting
in markets act as if they are guided by an “invisible hand” that leads them to
desirable market outcomes.
 Prices are the instrument with which the invisible hand directs the economy. Because
households and firms look at prices when deciding what to buy and sell, they take
into account the social benefits and costs of their actions.
 As a result, prices guide these individual decision-makers to reach outcomes that, in
many cases, maximize the welfare of society as a whole.
1-6
Question #6
 Answer: (4)
 Before the seatbelt law was enacted, driving safely had a large marginal benefit
because drivers had no other protection aside from their safe driving.
 After the seatbelt law was enacted, drivers perceived their safe driving to be less
crucial to their safety because there was a seatbelt to add a layer of protection.
 As a result, the marginal benefit of driving safely decreased, which resulted in more
automobile collisions.
1-7
Question #7
 Answer: (2)
 Option (2) looks at a macroeconomic topic, referring
to the more general, total economic impact of
higher national saving.
 Options (1), (3), and (4) relate to microeconomics on
the basis that they refer to household/firm decisions.
They look at more focused economic impacts.
1-8
Question #8
 Answer: (3)
 Principle #5 in Chapter 1 illustrates that trade can make everyone better off.
 Countries can benefit from the ability to trade with one another.
 Trade allows countries to specialize in what they do best and to enjoy a greater
variety of goods and services. (Similar to how households benefit when trading).
1-9
Question #9
 Answer: (1)
 The opportunity cost of going to the theatre with your friend includes
the money you spend on your ticket, and the time you gave up to
attend the theatre.
 The time you took out to attend the theatre could have been spent
doing something else, i.e., working a job.
 By going to the theatre, you have given up other alternatives that you
could spend the time and money on.
1-10
Question #10
 Answer: (4)
 Athletes who drop out of school and play
professional sports to earn a lot of money are
well aware that their opportunity cost of
university is very high.
 The opportunity cost is what must be given up
to obtain something else. In this case,
individuals are giving up their education for
the potential to earn considerably more
money
 (Even if you are joining the Buffalo Bills)
1-11
Question #11
 Answer: (4)
 Because prices have been stagnant and not rising over past
decade, one could infer that inflation is low in this market.
 Inflation exists in markets when there is an overall increase in
the prices in the economy.
1-12
Question #12
 Answer: (2)
 Economists make assumptions to help make the study of
economics easier to understand.
 However, economists make different assumptions to answer
different questions.
 What might be a useful assumption in one circumstance
might not be useful in other circumstances.
 The art in scientific thinking is deciding which assumptions to
make.
1-13
Question #13
 Answer: (1)
 Rent control is a ceiling placed on the rents that landlords may charge
their tenants.
 As we will discuss further in a later lesson, almost all economists believe
that rent control adversely affects the availability and quality of
housing and is an expensive way to help the most needy members of
society.
 Rent controls do not provide an example of economic equity.
1-14
Question #14
 Answer: (4)
 Technological advances by engineers (e.g., LED lighting technology) allow the
size of buildings to increase without generating more GHG emissions, this causes
the shift (pivot) of the Production Possibility Frontier (PPF).
 In other words, at a given size of a building, that building now generates fewer
GHG emissions.
 The number of buildings being constructed, the pace of construction, and
society’s view on the health of people would not necessarily reduce the GHG
emissions of a building, thus there is no shift (pivot) of the PPF.
1-15
Question #15
 Answer: (2)
 The production possibilities curve shows the combination of
outputs the firm can produce.
 Because the firm needs three arrows for each bow, the firm
should produce more arrows than bows, which is represented
by point A.
 In other words, they should utilize more resources for arrow
production. Furthermore, as point A is located on the curve, it is
the most optimal usage of resources.
 Point D is also an optimal usage of resources, but in this case,
they are producing more bows than arrows, which does not fit
their business model of three arrows to one bow.
Note – A great example of a UBC level II question. They did not
label the graph specifically with bows and arrows and want you
to know the farther from the 0 point on the graph the higher the
quantity. This is important to remember for everything we do
1-16
Question #16
 Answer: (3)
 A demand curve traces out the effect of a good’s price on the quantity of the good
consumers want to buy.
 The demand curve slopes downward because the price and the quantity
demanded are negatively related.
1-17
Question #17
 Answer: (2)
 The movement from point A to point C is a movement along the same demand
curve and represents a change in the quantity demanded.
 The consumer will buy the same number of CDs at each price, but as the price falls,
the consumer moves along the demand curve.
 In contrast, the movement from point A to point B is a change in demand. This shift
indicates that the consumers will buy more CDs at each price.
1-18
Question #18
Answer: (4)
Slope = (change in) y 4 (b)-6 (a)
-2
-1
------------------------------- = ---------- = ------ = ---- = ---(change in) x 30 (b) -20 (a) 10
5
1-19
Question #18
 What is slope?
 Think of it as a hill. A flat hill (line) has no slope. A steep
hill has a steep slope
 https://www.youtube.com/watch?v=yadjOI9awQQ
1-20
Question #19
Answer: (3)
A shift in the curve occurs when a variable
that is not named on either axis (not
price/quantity) changes.
Income is not on the x-axis or the y-axis of
the graph, so when income changes, the
demand curve shifts.
 A change in the price of CDs or the
quantity of CDs will result in a movement
along the demand curve. (A to C)
1-21
Question #20
 Answer: (3)
 If True North increases production of detached housing units from
100 to 200 units, it must not construct 100 additional units of
apartments.
 In other words, it must give up 100 apartment units to build 100
detached housing units.
1-22